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Hard times hit New Mexico’s dairy industry

Monday,November19th,2018

Some 3,000 cows shuffle every day through the carousel milking barn at Dale and Susie Jones’ dairy farm at Veguita in central New Mexico.

The cows line up from dawn to dusk to take their turn in the merry-go-round-like milking machine, with 65 animals at a time standing side-by-side in narrow stalls with sucking pumps attached to their udders. As the rotary turns, the pumps continuously siphon all the milk through a cooler, and from there to massive holding tanks for loading onto trucks and delivery to processing plants.

When one cow’s udder is drained, the pumps automatically drop off and the cow backs out of the stall as another one steps in to take her turn. Farm hands standing below the stalls attach pumps to the new cow’s bulging udder.

Carousel technology allows the Jones family to milk 3,000 cows a day at their dairy farm at Veguita in central New Mexico. (Adolphe Pierre-Louis/Albuquerque Journal)

Like clockwork, the milking machine continues its steady circular rotation as cows shuffle on and off with little, if any, encouragement from humans. It’s state-of-the-art technology that the Joneses installed 14 years ago on their third-generation farm just east of Bernardo, which the couple runs with Dale’s father, Ron.

Despite the operation’s 21st Century efficiency, the Jones expect to barely break even this year, thanks to chronically-low milk prices.

“We’re losing money every month,” said Dale during a recent tour of the carousel barn. “We’re not even breaking even now.”

The Jones need at least $16.50 per 100 pounds of milk to make any profit, but today they’re earning about $14.50, with few prospects for improvement in the short term. And that’s got the Jones worried about the future for their three teenage and young-adult children.

“We have three kids, and they’ve all shown interest in continuing in the family business,” Susie said. “But we just don’t know what that looks like now.”

It’s the same story at farms across New Mexico and most dairy producing states throughout the U.S. Like the Joneses, about 98 percent of all dairy farms nationwide are still family-owned and operated.

But extreme price volatility that began with the recession in 2008 has made most operations highly unpredictable and increasingly difficult to maintain. There have been a few up years over the past decade, particularly in 2014 when prices hit $23.50 per 100 pounds. But most years have seen much lower prices, and the past two years have taken an especially hard toll on farmers in New Mexico and elsewhere.

Global oversupply is keeping prices down, directly impacting domestic producers who export more than 15 percent of all dairy products to other countries. President Donald Trump’s hardline trade negotiations have led to newly imposed tariffs on all dairy products sent to China and 25 percent tariffs on cheese exported to Mexico.

Calves are raised from birth to reproduction age at Jones Dairy in Veguita. (Adolphe Pierre-Louis/Albuquerque Journal)

“Broadly speaking, the global market is in oversupply, and it’s not helping domestic dairy producers,” said Peter Vitaliano, chief economist with the National Milk Producers Federation. “We were looking at some price improvement earlier this year, but the new tariffs set that back.”

Prices are expected to rise going into 2019, but it’s a slow recovery ahead.

The stress is pushing many long-time family operators to exit the industry, selling off their cows and assets handed down over generations. The number of dairy farms nationwide has dropped by about 56 percent since 2000, from about 90,000 to about 40,000, said Robert Hagevoort, a dairy specialist with New Mexico State University’s Cooperative Extension Service.

“We’re seeing a lot of consolidation throughout the U.S., especially in the Midwest and in New Mexico,” Hagevoort said. “Everyone is eating up their reserves. They’re either on the brink or in a really tough situation.”

That’s hard on New Mexico, where the dairy industry accounts for about 40 percent of all income from agricultural production. It directly employs about 3,400 people.

The Jones family grows 3,000 acres of corn, alfalfa, winter wheat and sudan grass to offset the cost of buying feed from other producers. (Adolphe Pierre-Louis/Albuquerque Journal)

Cash receipts from local milk production dropped by $600 million since 2014, from $1.8 billion that year to $1.2 billion in 2017, according to the National Agricultural Statistics Service.

The number of dairy farms in New Mexico has fallen by about 23 percent since 2000, from 185 then to 142 now, said Beverly Idsinga, executive director for Dairy Producers of New Mexico.

“If the dairy industry went out of business, it would impact a lot more than the producers,” Idsinga said. “Dairy is critical to the New Mexico economy.”

The state is No. 9 nationwide in milk production, and No. 5 in cheese, with a half-dozen plants making a variety of cheeses and other products like dry powdered milk and whey. That includes Southwest Cheese in Clovis, the largest cheese plant in North America, plus Leprino Foods in Roswell, the world’s largest mozzarella producer.

Apart from low milk prices, high costs for feed, which account for about 60 percent of expenses, are also squeezing producers. And veterinarian services, modern nutrition and genetics programs to improve herd reproduction and milk quality, plus rising labor costs are all taking their toll.

“There’s a real shortage of labor,” Idsinga said. “Starting wages used to be $10 per hour, but now it’s upwards of $15.”

Despite the challenges, local producers are faring better than in other places. New Mexico has the nation’s largest average herd size with 2,088 cows, helping buffer low milk prices somewhat through increased production.

Efforts to improve efficiency have also helped.

“Cows in New Mexico are generally producing more through good management, including improved nutrition and breeding technologies,” Hagevoort said. “Producers are looking at every angle to be more efficient.”

For the Joneses, that included the installation of their carousel milking barn plus a major push to grow their own feed rather than buy from other producers. They now cultivate corn, alfalfa, winter wheat and more on 3,000 acres of land, up from about 600 acres six years ago.

But efficiency only goes so far, and as long as prices stay low, producers face a constant struggle to get by, said Charlie DeGroot, who manages 4,600 cows with his father at Three Amigos Dairy in Dexter, southeast of Roswell.

“It’s been a real wash since 2009, with prices up and down,” DeGroot said. “Our last banner year was 2014, but with prices so low now, we’ve put two-thirds of our profits from that year back into the operation. Everyone is turning to credit to survive.”

In previous decades, prices were more predictable. But global trade and competition has made the industry much more volatile, DeGroot said.

“In the past, producers knew that over a 10-year period, you’d have maybe seven prosperous years and three money losers and if you were prudent with your finances, you’d weather the down periods,” DeGroot said. “Now, the problem is the industry isn’t just cyclical, it’s chaotic and unpredictable.”

For now, many producers are expecting the recent renegotiation of the North American Free Trade Agreement among the U.S., Mexico and Canada to at least moderately stabilize markets and prices. And most are hoping for a successful conclusion to U.S. trade disputes to bring more predictability to the world market.

“I still think the future is bright,” Hagevoort said. “Milk prices may be down now, but once we get the trade barriers and tariffs taken care of, the U.S. can compete well in fair and open international markets, especially New Mexico with its quality products. I still see lots of opportunity in the future.”